Diversity: Keeping Shareholders Informed

Bill 101 proposes provisions that support diversity for certain
OBCA corporations. Using the same language as the proposed
amendments for the CBCA addressing diversity, Bill 101 would
require prescribed OBCA corporations:

to provide shareholders with
prescribed information about diversity among directors and senior
management on an annual basis; and

to send this information to all
shareholders, except for shareholders who have informed the
corporation in writing that they do not want to receive such
information.

It is not clear currently if such prescribed information would
relate solely to gender diversity or, similar to the proposed
amendments for regulations to the CBCA, extend to disclosure of
diversity beyond gender. As
previously discussed, board diversity in all forms,
and particularly gender diversity, has been at the forefront of
corporate governance initiatives in the last few years, with the
Canadian Securities Regulators adopting amendments to National
Instrument 58-101 Disclosure of Corporate Governance
Practices and Form 58-101F1 Corporate Governance
Disclosure in 2014 and subsequently conducting annual reviews
of the diversity disclosure made by TSX-listed issuers.

Shareholder Nominations and Meeting Requisitions: Lower
Thresholds

shareholders to nominate individuals
for election as directors from 5% to 3%; and

shareholders to requisition a meeting
from 5% to 3%

The proposed amendments would not prevent director nominations
from being made at a meeting of shareholders.

These proposed amendments differ from the CBCA which currently
maintains a 5% shareholding threshold for both director nominations
and meeting requisitions, with no current proposal for lowering the
threshold. Interestingly, if adopted, Bill 101 would also amend the
OBCA to provide that where a shareholder has nominated an
individual for election as a director, the shareholders present at
the relevant meeting of shareholders would select from among
themselves a chair of the meeting. No similar CBCA provision is in
effect or proposed.

Majority Voting for all OBCA Corporations

Like the amendments proposed for the CBCA and existing
regulations of the TSX, Bill 101 seeks to legislate a
majority voting standard for OBCA companies and to require that
companies hold annual elections, with each director being elected
separately to hold office for a term ending no later than the day
of the company's next annual meeting. Notably, unlike the CBCA
amendments, the Bill 101 amendments would apply to
all OBCA companies and not just public companies.
It remains to be seen whether such a requirement will have any real
impact on private corporations which tend to be closely held and
may not be subject to the same concerns raised by public company
shareholders beyond introducing an additional degree of complexity
in the director election process.

As
we have discussed in the past, the emergence of
majority voting policies was a direct result of the fact that
shareholders of Canadian public companies who vote by proxy have no
automatic right under corporate law to vote "against" an
individual director nominee. Instead, shareholders who vote by
proxy only have the option to vote "for" a nominee or to
effectively abstain from voting by withholding their vote. In
practice, since most shareholders of Canadian public companies vote
by proxy, directors are elected so long as any affirmative votes
are received, regardless of the number of votes withheld. This has
two implications: (i) a minority of shareholders voting
"for" director nominees has the power to elect those
directors; and (ii) even an overwhelming majority of votes withheld
will not block the election. Existing majority voting policies and
these proposed amendments are an attempt to address these two
issues.

The proposed amendments would also impose a new mandatory voting
requirement whereby all shareholders entitled to vote in a director
election and who are present in person at a shareholder meeting
where directors are being elected are required to vote in favour or
against every candidate. Currently, no other corporate statute in
Canada imposes such a requirement.

More than Just a "Say": Shareholders to have
"Last Word" on Pay

In addition to the proposals outlined above, Bill 101 would
introduce a provision that explicitly allows shareholders to put
forth proposals to adopt executive compensation policies with
respect to the remuneration of directors and officers and would
require directors of a corporation to fix director remuneration in
accordance with any such adopted policy. This proposal goes a step
further than traditional say-on-pay advisory votes where directors
are not required to comply with shareholders' wishes.
Currently, when shareholders reject a company's compensation
structure in a say-on-pay vote, the company may still set
compensation levels at its discretion (without regard to the say-on
pay advisory vote). However, such companies may face heightened
scrutiny from proxy advisory firms like Institutional Shareholder
Services or Glass Lewis and lack of board responsiveness to such
votes will influence ISS or Glass Lewis when determining voting
recommendations for director nominees.

Other Provisions

Other topics addressed in Bill 101 include new requirements for
forms of proxy, removing the requirement that dissident proxy
circulars be sent to the company's auditors, and the filling of
director vacancies.

Status of the Proposed Legislation

Although Bill 101 is a private member's bill, it was
introduced by a government MPP and reflects similar proposed
legislation at the federal level. It may therefore be more likely
than most private member's bills to gain enough support to be
passed into law (although this is by no means a certainty).

Board independence is a pillar of good corporate governance. It ensures that a corporation's management is properly monitored and that the corporation's decisions effectively balance the various stakeholders' interests.

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